Types of Brokerage Accounts
Finding a broker that fits your personal investing style is worth the time and the effort. A good match with a brokerage firm will be one that offers the services you like to use for the least amount of money. Comparing all the costs of buying and selling as well as commissions will assist you in making this determination.
Types of Brokerage Accounts
Several different types of accounts are available to investors but there are three that are the most common.
- Cash Accounts: Anyone can open a cash account. However, it may be the only option available to investors who have poor credit. An initial deposit is required and depending on the broker can range from $10,000 to a minimum of $500. A cash account requires money to be deposited in the account before the closing date (three days after the trade is made) of any trade the investor makes. If cash remains in the brokerage account, the broker may offer to pay interest on it at a money-market rate.
- Margin Accounts: Good credit is necessary to use this type of brokerage account. With a margin account, the investor has the ability to borrow money against the securities in the account to buy even more stock. In effect, this operates in terms of credit. A margin account is needed to short-sell stocks. Interest rates are charged for this opportunity of buying stocks on margin and vary from broker to broker.
- Option Accounts: This is a combination of the benefits of cash and margin accounts with the addition of being able to trade stock and index options. Investors must sign a statement confirming they recognize the risks involved and are knowledgeable about options.
